Reduce costs, not just prices

Do you wonder why political adversaries seem so often to talk past each other rather than engage in useful debate? One reason is that, in many cases, they really aren’t talking about the same things.

Consider two issues drawing a lot of attention in North Carolina and across the nation this year: college costs and health care costs. Both have grown faster than the cost of other goods and services for many years. Both are putting significant pressure on family budgets as well as those of federal and state governments. And both are of great interest to liberal and conservative politicians, commentators, and analysts.

But the terms “college costs” and “health care costs” often conjure up different images in the minds of the two ideological camps. For example, Democratic candidates Bernie Sanders, Hillary Clinton, and Roy Cooper are promising to combat the rising cost of college by having government pay more (or all) of the annual cost of tuition and fees.

That’s not really a policy intended to reduce the cost of higher education, however. It is intended to reduce the price charged to its direct beneficiaries, namely students and their families.

The cost of higher education would either stay the same or, more likely, rise if tuition were more heavily subsidized, in the latter instance because demand for college and university educations would increase. Institutions could add more personnel, more facilities, and more ancillary services without deterring most students from enrolling. Someone else would pay.

The effects of heavily subsidized tuition on college costs have already been evident for decades. Increasing the subsidy would probably accentuate the effect. We’ve seen a similar effect of third-party payment on health care costs for the past half-century. When someone other than the patient is paying the bill, the patient has little incentive to shop around or forego low-priority medical services.

Rather than shift rising costs around by manipulating the prices apparent to consumers, today’s conservative reformers are interested in actually reducing those costs over time. Until recently, for instance, many North Carolinians were under the mistaken impression that their public university system was a “bargain,” that it provided a tremendously valuable service to students and the general public at a relatively low cost.

In reality, again, what the UNC system really did was charge a relatively low price. Its cost — total expenditure per full-time-equivalent student, from all funding sources — was higher than the national average. After the onset of the Great Recession in 2007 produced multi-billion-dollar deficits in the state budget, legislators and UNC officials had no choice but to target the cost of the system. They eliminated positions, ended some low-priority programs, and implemented other efficiencies. The price of an education at UNC rose a bit, via hikes in tuition and fees, but the inflated-adjusted, per-pupil cost of the system went down.

There remain many ways that North Carolina policymakers can combat rising costs in these two key sectors. In higher education, it is apparent that the needs of some students are better and more efficiently served by the community college system than by the UNC system, at least for the purposes of acquiring the first two years of general-college education. New technologies, new systems to certify knowledge and skills, and new ways to organize post-secondary education also offer a great deal of promise.

Two good ways to reduce the cost of Medicaid and other publicly funded health programs over time would be to relax restrictions on the ability of nurse practitioners to provide routine medical services, including prescriptions, and to end restrictions on robust competition among hospitals and surgical centers.

Don’t be distracted by political proposals that claim to reduce costs but really just reduce the apparent price, by shifting the costs over to employers or governments. You’ll still end up shouldering much of those costs, in the form of lower wages or higher taxes. To make higher education and health care affordable means reducing the actual cost of delivering those services. There’s no painless alternative.

John Locke Foundation chairman John Hood is the author of Catalyst: Jim Martin and the Rise of North Carolina Republicans.
comments powered by Disqus